Courtesy Adaderana

January 10, 2017 06:38 pm

Former President Mahinda Rajapaksa says that as a matter of principle, he is against the leasing of the entire Hambantota harbour for 99 years and giving the rights of the landlord over the industrial zone to a foreign private company.

He said that the industrial zone and the harbour should be controlled by the Ports Authority while harbour operations may be given on management contracts to the private sector.

For example, the Colombo port is run by the Ports Authority and two private operators. The Ports Authority has full control over the Colombo harbour as well as equity in the two privately run terminals.

I believe this should be the approach to the Hambantota port as well,” he said, issuing a statement on Tuesday (10) explaining his position on the Hambantota port issue.

He stated that investments such as the Hambantota Port last centuries and that a new harbour cannot be expected to produce large profits in the first few years. Our plan was to break even within ten years.”

Rajapaksa said his government had signed a Supply Operate and Transfer (SOT) management contract with a joint venture between China Harbour Co and China Merchant Co to supply equipment such as cranes and operate the Hambantota container terminal for 40 years.

He said the Ports Authority was to receive a rental of 35,000 USD per hectare per year for the 56 hectares in the container terminal (a total of 1.96 million USD per year), a royalty of 2.5 USD on every container loaded or unloaded, warfrage of 30 USD per container for cargo coming into Sri Lanka and all other usual harbour charges for navigation, piloting, tonnage, etc.

The former President charged that the new government made some unwise decisions.”

Firstly, they disregard the management contract for the Hambantota container terminal entered into by my government with China Harbour Co and China Merchant Co. Secondly, the Ports Authority had developed the Colombo East container terminal and upon its completion by 2016, this terminal would have produced a revenue of more than 100 million USD a year which the Ports Authority had earmarked to pay off the Hambantota loan until the latter generated sufficient income.”

He stated that the yahapalana government halted the Colombo East terminal development. Thirdly, by the end of 2014, my government had signed agreements with several foreign and local companies to lease out about 80 hectares in the Hambantota port industrial zone at the minimum rate of 50,000 USD per year per hectare with minimum guaranteed volumes of cargo and minimum guaranteed royalties.”

He said that all those agreements were disregarded by the new government.

The UPFA Kurunegala District MP claimed that a 99 year lease impinges on Sri Lanka’s sovereign rights because a foreign company will enjoy the rights of the landlord over the 2,000 hectare free port while operating the entire harbour as well.

This is not an issue with China or with foreign investors. It is about getting the best deal for Sri Lanka.”

He said that this is not an issue that can be resolved by baton-charging or tear gassing protestors or having them assaulted by thugs and remanded.”

There are real issues relating to the financial benefits that will accrue to the country from this deal, and issues of control and sovereignty over the free port and possible environmental issues that need to be addressed, he said.

Full Statement:

Since the future of the Hambantota port is now under discussion, I wish to explain to the public, my position on this matter. The loans taken for the construction of this harbour were 450 million USD for the first phase, 70 million USD for the bunkering facility and 802 million USD for the second phase bringing the total to around 1,322 million USD. When complete the harbour would have four terminals and 12 berths. This was meant to be a free port covering an area of 2,000 hectares where goods could be manufactured or value added and shipped overseas. All the necessary feasibility studies were done before these loans were taken and the annual interest plus capital repayments would amount to about 111 million USD. My government had planned to raise that money through the Ports Authority itself.

The first phase of the Hambantota harbour became partially operational in 2011. The transhipment of vehicles began in 2012 with 70% of the vehicles coming into Hambantota being transhipped to other countries. In 2014, 335 vessels called at the Hambantota harbour with 295 in 2015. The port made an operating profit of Rs. 900 million in 2014 and Rs 1.2 billion in 2015. These are investments that last centuries and a new harbour cannot be expected to produce large profits in the first few years. Our plan was to break even within ten years.

My government had signed a Supply Operate and Transfer (SOT) management contract with a joint venture between China Harbour Co and China Merchant Co to supply equipment such as cranes and operate the Hambantota container terminal for 40 years. The Ports Authority was to receive a rental of 35,000 USD per hectare per year for the 56 hectares in the container terminal (a total of 1.96 million USD per year), a royalty of 2.5 USD on every container loaded or unloaded, warfrage of 30 USD per container for cargo coming into Sri Lanka and all other usual harbour charges for navigation, piloting, tonnage, etc. Other than the container terminal, all other terminals in the harbour and the 2,000 hectare industrial zone was to be controlled by the Ports Authority and they would have derived the income from the cargo of the free port passing through their terminals.

The new government made some unwise decisions. Firstly, they disregard the management contract for the Hambantota container terminal entered into by my government with China Harbour Co and China Merchant Co. Secondly, the Ports Authority had developed the Colombo East container terminal and upon its completion by 2016, this terminal would have produced a revenue of more than 100 million USD a year which the Ports Authority had earmarked to pay off the Hambantota loan until the latter generated sufficient income. The yahapalana government halted the Colombo East terminal development. Thirdly, by the end of 2014, my government had signed agreements with several foreign and local companies to lease out about 80 hectares in the Hambantota port industrial zone at the minimum rate of 50,000 USD per year per hectare with minimum guaranteed volumes of cargo and minimum guaranteed royalties. All those agreements were disregarded by the new government.

Then the government said the Hambantota port was a white elephant and that it had to be privatised to raise the money to pay off the loans taken to build it. They called for bids, not just for harbour operations but for the rights of the landlord over the entire 2,000 hectare free port so that whoever takes the long lease will operate the entire harbour and have complete control over the industrial zone as well. The two companies China Harbour Co and China Merchant Co which made a joint proposal to lease out the Hambantota container terminal for 40 years during my government are the same companies that have made rival bids to lease the entire free port under the present government.

A framework agreement has been signed by the govt. with China Merchant Co to lease out the entire free port for 99 years for a payment of 1.08 billion USD on a 80%-20% equity sharing basis. No other income will accrue to the Ports Authority for 15 years, after which they will receive dividends for their 20% stake only if dividends are declared. The lease will be extendable for another 99 years and a 44 hectare artificial island outside the port has been included in the deal. There is provision for the construction of another 20+ berths and the rights over these too have been given to the lessee. The amount of the lease seems to have been based only on the construction cost of the port without an accredited international valuation reflecting the strategic location value of the port, the value of the 99 year period, its 2,000 hectare land, the oil tank farm and the value of its present commercial operations.

This bid has been accepted in a situation where the other company China Harbour Co. had (according to information available to us) put in a much more favourable bid to lease the free port on a 65-35 equity sharing basis for 50 years with an upfront payment of 750 million USD plus the payment of all the charges they had earlier agreed to with regard to the container terminal management contract. The government has chosen the least favourable bid despite (according to information available to us) the Ports Authority having recommended the other bidder. Details of how the two proposals were evaluated have not been disclosed.

A 99 year lease impinges on Sri Lanka’s sovereign rights because a foreign company will enjoy the rights of the landlord over the 2,000 hectare free port while operating the entire harbour as well. This is not an issue with China or with foreign investors. It is about getting the best deal for Sri Lanka. The agreement that my government negotiated with both China Harbour Co and China Merchant Co to manage the Hambantota container terminal for 40 years is the best deal yet. The bid made by China Harbour Co for a 50 year lease is obviously more favourable than the bid made by the other company. As a matter of principle, I am against the leasing of the entire harbour for 99 years and giving the rights of the landlord over the industrial zone to a foreign private company. The industrial zone and the harbour should be controlled by the Ports Authority while harbour operations may be given on management contracts to the private sector. For example, the Colombo port is run by the Ports Authority and two private operators. The Ports Authority has full control over the Colombo harbour as well as equity in the two privately run terminals. I believe this should be the approach to the Hambantota port as well.

Apart from the entire Hambantota free port, the government has decided to lease a further 15,000 acres outside the free port to a foreign company for 99 years. In a situation where even the 2,000 hectares within the free port have not been utilised yet, on what grounds can we justify the leasing of another 15,000 acres to a foreign company? The total land area of all the Board of Investment economic zones in the country at present put together do not amount to 2,000 hectares. A 15,000 acre zone in Hambantota will be disproportionate to our country’s economy. Furthermore, the disruption caused to the people of the area will be immense if 15,000 acres of land were to be acquired for this purpose. The government should fill the free port with investments first before opening more zones. Furthermore the government should have supervision over the kind of factories, that will be opened in these industrial zones, the fuel they use and the waste they produce. My government agreed only to the use of LNG gas, even though some potential investors wanted to use coal.

This is not an issue that can be resolved by baton-charging or tear gassing protestors or having them assaulted by thugs and remanded. There are real issues relating to the financial benefits that will accrue to the country from this deal, and issues of control and sovereignty over the free port and possible environmental issues that need to be addressed.

– See more at: http://www.adaderana.lk/news/38573/99-year-lease-impinges-on-sri-lankas-sovereign-rights-mr#sthash.GzYnuyda.dpuf

Actual profit for the year 2014 9 million USD
Actual profit for the year 2015 12 million USD
Anticipated income from leasing out 2,000 hectare industrial zone
Anticipated income from rental of 35,000 USD per hectare per year for the 56 hectares in the container terminal – total of 1.96 million USD per year
Anticipated income from royalty of 2.5 USD on every container loaded or unloaded, warfrage of 30 USD per container for cargo coming into Sri Lanka and all other usual harbour charges for navigation, piloting, tonnage,

Hence Anticipated breakeven profit in 2024 (in 10 years)

Anticipated income from the Colombo East container terminal 100 million USD (loss compensation)

Additional losses incurred due to unwise decisions of the Yahapalanaya government
Disruption of the Colombo East container terminal 100 million USD leaving port authority without any loss compensation
Cancellation of lease out about 80 hectares at the minimum rate of 50,000 USD per year per hectare -4 million USD

Therefore Yahapalanaya government had only one fall-back option – lease out not just harbour operations but for the rights of the landlord over the entire 2,000 hectare free port so that whoever takes the long lease will operate the entire harbour and have complete control over the industrial zone as well.

52% of the people who voted for Sirisena to become the president of Sri Lanka should also be blamed for the misjudgement made by Yahapalana government. Now there is no way out of economic mess made by these foolish uneducated politicians who even cannot add and subtract four digit numbers.

Anyway Two bids received by the Ports Authority

Bid 1 by China Merchant Co 99 years for a payment of 1.08 billion USD on a 80%-20% equity sharing basis. No other income will accrue to the Ports Authority for 15 years, after which they will receive dividends for their 20% stake only if dividends are declared.

Bid 2 by China Harbour Co 50 years for a payment of 750 million USD on a 65-35 equity sharing basis plus the payment of all the charges they had earlier agreed to with regard to the container terminal management contract. .

Bid 2 was recommended by the port authority but Bid 1 was accepted by Ranil and his advisers

Apart from the entire Hambantota free port, as bonus the government has decided to lease a further 15,000 acres outside the free port to China Merchant Co company for 99 years with no additional fee

The total land area of all the Board of Investment economic zones in the country at present put together do not amount to 2,000 hectares.

As Mahinda pointed out In a situation where even the 2,000 hectares within the free port have not been utilised yet, on what grounds can we justify the leasing of another 15,000 acres to a foreign company? A 15,000 acre zone in Hambantota will be disproportionate to our country’s economy. Furthermore, the disruption caused to the people of the area will be immense if 15,000 acres of land were to be acquired for this purpose.

However, I have a different take on the financials. The government (not Hambantota port) repays $111 million for a loan of $1.332 billion, the interest rate is 8% – not unusual for a Chinese loan for a project of this nature. The total interest and repayments we would pay for the entire term would be $4.5 billion. This is saved by the new agreement.

In addition the $1 billion immediate income can be used to repay another loan which will save another $2 billion at least. However, my guess is the UNP regime will rob it instead which is unfortunate. Otherwise it will be a huge saving for the future.

The break-even has been calculated assuming the current rate of growth of 33% profit would continue every year for 10 years. It will not. It is normal for initial years to have a high growth rate but it reduces as years proceed. I think 10% is accurate beyond this year (fifth year of operations) for another 5 years only. Thereafter it will be around 5% growth. Don’t forget Colombo terminals and South Indian terminals also compete for containers. Break-even will not be achieved for at least 40 years.

Colombo east terminal would have provided cash if the new regime didn’t disrupt it. However, it has its own loans to repay and profit needs to justify its own investment. Using that to make the former Hambantota deal profitable clearly proves the latter was unsustainable in cashflow stand alone.

The 15,000 acre lease will surely have a lease payment. There is no evidence to say it will be free. I agree this 60 square kilometres is a huge extent of land, however, it is not disproportionate to our country’s economy. On average our per 1 sqkm GDP contribution is just $1.3 million whereas China has already promised $5 billion investments in the park which is $17 million per 1 sqkm. In other words, the land productivity is 13 times in the park than elsewhere on average. This is very good for one of the poorest districts of the nation.

I agree this is not the best deal but it surely benefits the national economy better. There is little use of a port without using it to the maximum by surrounding industries. Our delay in Hambantota is a blessing for Tamil Nadu which is moving fast on a new port in Enayam. Also for Kerala in Vizhinjam port. Obviously investment-wise Sri Lanka cannot compete with Tamil Nadu (roughly double the economy of Sri Lanka and also backed by India which is roughly 50 times the economy of Sri Lanka). The only choice is China.

Sri Lanka’s debt massively increased since 2010. Both local and foreign debt was $34 billion by 2009 which was added another $68 billion since then and now it is $102 billion. Not many development works happened from the $68 billion. These have to be repaid with interest. If we don’t repay them, there will be a higher interest burden for future. If we had not indebted our future since the end of the war to the tune of $68 billion, we don’t have to sell family silver today. If we don’t resettle these loans now, more have to be sold off in future.

Despite accusations to the contrary, you have CLEARLY PROVED in this disclosure that you are a Patriot who protects the sovereign rights of your people in INFRASTRUCTURE DEALS with foreign powers, even our great ally China!

I CONCUR that your arrangement with the Chinese companies was the BEST DEAL we had which the SERIAL UNPATRIOTIC BUNGLERS of the Yamapalanaya converted to a TOTAL SELLOUT to recover from their foolish financial misadventures and outright SCAMS!

The STUPIDITIES & CRIMINAL ACTS of the Yamapalanaya are a LEGION and UNENDING! The Hambantota Port sale with 15000 acres of additional land is TREASON MOST FOUL!

A GREAT CENTRAL BANK ROBBERY that LOOTED an vast sum of money from the nation, and as DarshaNA Handungoda reported on SLVBLOG is now being used by Aloysius Mahandran to create 6 media channels for the UNP: a Newspaper, a Radio Station + TV Station in all three Sinhala, Tamil and English Languages! Why is he and his uncle Arjuna still free and not in prison awaiting trial? Is it because the Yamapalanaya is using those stolen funds to consolidate it’s hold on government power?

How can countries specially the « developing countries » build its infrastructure, take up massive development of neglected aspects of the countries economy, plantations, health and education, and modernise the country without taking loans ? Developing countries cannot depend on the IMF and the World Bank for real development purposes, as these banks are influenced by the USA and the West which would not allow developing nations to grow as independent sovereign states. They will do their best to keep the countries of the “third world” dependent on the USA and the West thereby also maintaining their leadership in the world.

But the developing countries should know how to manage loans, without falling in to a “debt trap”. I think the President Mahinda Rajapakse’s government was taking loans but was capable of loan management. Given time President Mahinda Rajapakse would have developed the country and paid up the debts, without causing serious economic trouble to the country and the people.

Mahinda Rajapakse did not call for early elections , because he saw difficulties in payment of loans as the UNP and Sirisena says, but he wanted to be sure that he would be at the helm of the Administration of the country to complete the projected development plans envisaged in Mahinda Chintanaya. Only problem he had was from the USA and the West.

Even today the troubles of Yahapalanaya stems from its folly of depending on the West. USA and the West will never help them to rise above the present economic crisis, but they will make Sri Lanka helpless to the extent it will be completely dependent on USA and the West. We do not know what it would be with Donald Trump . But that is yet to be seen.

MR’s statement did not mentioned the maturity period for the loan taken from China.

However, assuming that normally China has provided soft loans to Sri Lanka with the maturity period of 20 years, then based on the annual interest plus capital repayments of 111 million USD for 20years the back calculated interest rate will be exactly 5.62% APR (Annual interest rate)

By the end of the period Sri Lanka would have paid only 2.22 billion USD and not 4.5 billions USD according to your calculation. (I have used loans repayment software to calculate this data).

Indeed, well conceived infrastructure development with a well defined plan for repayment from the generated income is the best reason for a government to take loans, similar to how individuals take out mortgage loans to buy a home, instead of paying rent.

MR/UPFA had a well defined plan to service the loans with repayments that were well within the capabilities if the government.

Thr Yamapalanaya DISRUPTED that plan with their SERIAL BUNGLING and other financial missteps and outright thefts like the GRRAT CENTRAL BANK ROBBERY!

If an individual buys a home with a mortgage loan, and then either loses his creditworthiness or fights with the bank and gets a loan at a much higher interest rate with payments he cannot service, he too will lose his home. That is what has happened in both the Colombo Port snd Hambantota Port deals with China: CRIMINAL BUNGLING!

Sri Lanka will end up with a poor relationship with China ? !! That is probably the main aim of Yahap – Yahap killing two birds with one stone here : get money from Chinese businesses plus kill the good fellowship with China when Lanka fails to pay the loans !

NOTE : The deal with China is with private companies, not the govt of China.

I used – principal $1.332 bn, payment $111 mn and a loan term equalling the operating agreement (40 years). Then I get an interest rate of 8% which is incidentally what the finance minister told the Sangha Nayakes.

The effective interest rate is definitely higher than 5.62%. The stated interest rate since around 2011 is 6.3%. Initially the loan was LIBOR+0.9% but it was fixed at 6.3% by 2011. I’m sure it was raised again subsequently.

If I take 6.3%, I get 23 years which is closer to your calculation. The total savings in that case is $2.553 billion. Still large but smaller than my initial calculation of $4.5 bn. So we can agree that at least $2.4 billion will be saved by the new deal.

The 15,000 acres will be leased for 99 years. Very few outright land sales were attempted to foreign companies (not companies registered in Sri Lanka) during the past. One was the land transfer attempt to Dole Food Company (a US company) of 62,500 hectares in Buttala, Uva Kudaoya, Galle, Puttalam, Dambulla and Somawathiya. But eventually Dole quitted its Cavendish banana plans after protests and environmentalists threatened to disrupt the land use without finalising the sale.

Thanks Ananda for SLVLOG. I checked it out and find it interesting. But I find it goes light on government ministers.

It is gaining enormous popularity (considering the short time it was in) and I think it will make an impact on the political outlook, especially among the educated voting public. They have promised to put out one clip a day and each seems to be popular considering the time they were in web space.

Some of us should consider doing a similar thing instead of lengthy write-ups.

We are not sure of the maturity period of the loan offered to Sri Lanka.

There was big argument between the finance Minister and the Chine ambassador on the same issue. Chine ambassador was insisting that it was not 8% but 2%

China’s Ambassador to Sri Lanka, Yi Xianliang, said it was unfair for Sri Lanka to term loans given by China’s EXIM Bank as ‘expensive’ and questioned the government as to why it had sought fresh loans from China if the interest rates were ‘too high’. “
I have noted that some media and ministers have termed these loans as expensive. As you know we maintain a regular interest rate of 2 percent, not only for Sri Lanka,”

“I have already spoken to Ravi Karunanayake, Sri Lanka’s Finance Minister. I know he has criticized this issue many times, publicly. All the Chinese business people complain to the Chinese government as to why loans are given to other countries at 2 percent. For them it is atleast 5 percent.

So this is really unfair for Sri Lanka to call these rates expensive,” the Ambassador said.

Let me warn you AGAINST promoting SLBVLOG. This type of things emerge when the OPPOSITION is DEAD. They ASSUME the task of the opposition to MAKE A NAME FOR ITSELF. Then they USE that name to INFLUENCE elections!! I think they have already started it. They KNOW GR will contest the next presidential election and they have started attacking GR already!!

Before trusting them PLEAE check the PROFILE of the presenter. What can you find about him?

All pundits FAILED to see the REAL DEAL in H’tota. It is NOT about the country or China. They are trying to DESTROY Rajapakshes politically.

IF the govt. did another RATHUPASWALA then it will be VERY UNPOPULAR. But so far the govt. DID NOT do it. Very clever.

According to TOP SECRET govt. internal sources the next president is going to be culvert mouth RAJITHA.

He has MOST UNP and SLFP support, JVP support, TNA support, CWC and SLMC support. IF Sira dies in 2 weeks expect PRESIDENT RAJITHA! And expect absolute hell on his rivals. PRRA activists are already at work. Some of them are Tamils.

That is correct we don’t know the exact term because it is very complicated. Out of $6 billion total loans from China, $4.62 billion are on concessionary rates of around 2% (LIBOR + 0.9% or so) but the rest $1.38 are at commercial rates. As I understand most of the loans relating to the port is at 6.3%. This $1.38 billion will be repaid with the proceeds.

After the deal, Chinese loans will be $4.62 billion with an annual interest of $92 million. The $111 million saving can go to repay these.

Government has immediately started the Southern Expressway extension to Hambantota with another $1.7 billion loan from the same EXIM bank. This time they have also hired a Chinese (conflict of interest?) consulting firm to keep a tab on project cost for $90 million.

Please read the article published today (13/01/2017) on Lankaweb, the article says exactly what you have pointed out.

If the 1.332 billion USD loan is taken for 15 year repayment period, if you pay it back at a rate of 111million USD per year then the interest rate I get from (http://www.online-calculators.co.uk/interest/loanrepayment.php) is only 3.1% including the insurance premium issued by Chinese Sinosure, a state-owned insurance company for import-export business.(Loan protection Insurance Policy)

Ranil knows that they are incompetent in handling a business venture, let alone the country’s economy, and that is why they are very keen on leasing out the Hambanthota harbour. Unfortunately the Country has to wait for another 99 years get it back.

Jan 12, Colombo: Sri Lanka on Thursday offered temporary resident visas for foreign investors who invest a minimum of $300,000, in a move to ease pressure on the rupee.

Sri Lanka’s Minister of Finance Ravi Karunanayake addressing a media briefing today invited foreigners to use Sri Lanka to bank their surplus cash. He said the funds coming through Commercial Banking license can be invested in Sri Lanka.

The Minister said if foreigners, especially older people who like to spend time in Sri Lanka, can invest funds of at least $300,000, the government can offer temporary resident visas for 2 to 3 years. If they could increase the investments to $ 1.5 million the duration can be further expanded.

The money can be invested in the Banking Sector, the Stock Market and in Treasury Bonds. He said that exchange controls will be totally eliminated and the investments can earn higher returns of 2-3 percent compared to rates around 0.5 percent elsewhere in the world. However, he said that cash in millions cannot be taken out of the country.

The investments would boost the country’s foreign reserves and help cut reliance on foreign debt, Minister Karunanayake said. “What we want is investments and then there is no need of going behind loans,” he added.

The move is in line with a 2016 Budget proposal to grant resident visas to foreigners who bring in a large amount of foreign exchange into the country.

The Minister added that Mahinda Rajapaksa was presenting incorrect statistics on the loans obtained for the construction of the Hambantota Harbor.

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